Ad Here  
June
July
August
September
October
November
 
 
A development bank for BRICS Aadhaar, niraadhaar and banking Small finance payment banks... A new development bank rising in the east… The collaboration suite of cyber criminals Cut in repo rate – lower than expected Bottomlines shrink, bad loans rise... Well-lived... Indian customers are tech savvy Cradle of banks to a smart city... Smart banking in smart cities Holy or unholy? Rationalised Growing gainfully Thirty more cities seek to become SMART Banking overhauling or reorganisation? Who is the real beneficiary? Needed a Banking Atlas Banking on Risk From lazy banking to easy banking Hesitancy in announcing year-end results New bank licences, at last... Good, bad and ugly Another route for achieving financial inclusion Grows Bigger Small is ‘more’ beautiful Payment banks have arrived Growing volume of stressed assets… New capitals of Migrant banks Perhaps small is more beautiful than big! LVB- A supermarket of financial services Targets continue to be ad hoc Governance in Reverse Gear? Anytime banking to anywhere banking What is the priority – mergers or NPA reduction? Emerging crisis Managing NPAs... Why priority status? Ernakulam excels... Stage set for Indian ‘avatar’ of foreign banks Nothing much can happen…. Mega merger is on A bank for women, by women Banking in Telangana Reaching the Unreached… All that glitters is not gold... Drop in SLR- sparing lendable resources Lacklustre credit expansion How okay are new banks? Fund healthcare clinics in villages... Merger mania haunts banks Why any time money? Reaching out: is it slowing down? Drastic decline in asset quality The paradox: clamour for the Goliath and David Capital base of regional rural banks raised Cautious and considerate Financial inclusion vs unclaimed deposits Too big to fail and too small to sail Bank deposits account for 46.3 per cent of household savings Ferrying digital banking to Lakshadweep Greet Lakshmi the banking robot Just 660 days! Target over-ambitious... Small finance banks offer high interest rates How ‘secure’ are the secured loans? It’s a war on black money, support it. United India Insurance - Rs 110 crore losses have been claimed till now due to floods in Tamil Nadu Two banks: their jubilees and performances Monetary policy continues to adopt dis-inflationary path Big bank merger, bigger expectations One down in private sector Insatiable appetite for credit
 
Cautious and considerate
The Fourth Monthly Statement: 2016-17 of the Reserve Bank of India’s Monetary Policy Committee (MPC), released last month has reduced the Repo rate by 25 basis points, as eagerly awaited by the financial sector.

This decision was taken by the Monetary Policy Committee, headed by the governor of Reserve Bank. This is the first policy announcement made by Urjit Patel, the new boss.  “The decision of the MPC” asserted the Committee, “ is in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent.” The repo rate now stands at 6.25 per cent. The Bank Rate remains at 6.75 per cent, since April 2016, when it was reduced from the level of 7.00 per cent.

 

Cautious approach...

As against the exaggerated expectation of a higher reduction, a modest reduction of 25 basis points has been announced. This cautious approach has been explained in the Report: “the Committee took note of potential cost push pressures that may emerge, including the 7th Pay Commission Award on house rent allowances and the increase in minimum wages with possible spillovers through minimum support prices. The fuller play of these factors will need vigilance to prevent a generalised cost spiral from taking root.” 

The changing contours of inflationary trends in the recent period have also been explained in the Report: “retail inflation had been elevated by a sharp pick-up in the momentum of food inflation overwhelming favourable base effects during April-July. In August, the momentum of food inflation turned negative and surprised expectations; consequently, base effects in that month came into full play and pulled down headline inflation to an intra-year low. Fuel inflation has moderated through the year. Inflation excluding food and fuel has been sticky around 5 per cent, mainly in respect to education, medical and personal care services. Households reacted to the recent hardening of food inflation adaptively and raised their inflation expectations in the September 2016. Input costs in the manufacturing sector have firmed up slightly as evident in various surveys, but the presence of considerable slack has restrained their transmission into corporate pricing power.” The RBI’s assessment of the changes in the price situation is realistic.

 

Implications for banking sector...

The general expectation of bank borrowers is a reduction in the lending rates. In the recent past, bankers were reluctant to lend extensively to this sector as perceived by the builders. This situation was created by the decline in the loan repayment schedules. The enlarged inventories of unsold housing units with the builders have emerged as a cause of concern to the bankers. Contrary to common belief, the housing finance has increased, despite this problem, as the published data reveal. Advances to the housing sector have increased by 20 per cent, going up from Rs.6285 billion to Rs.7648 billion by March 2016. Aspiring borrowers of housing loans may have to wait until the banks are able to reduce the volume of non-performing assets in this sector.

It may be unrealistic for the bank customers to expect a reduction in the lending rates immediately. Between 15 January, 2015 and 15 April, 2016, the repo rate has been reduced by 150 basis points. In response, banks have lowered their benchmark lending rates by only 60 basis points. Banks have to calculate the impact of reduction in the lending rates on their bottom lines. A couple of banks, however, have made heroic announcements of reducing their rate of interest for fresh borrowings.  If banks have to reduce their lending rates, they have to reduce the deposit rates also, to maintain the interest margin and the cost of funds. But they cannot afford to reduce deposit rates, when bank deposits are slowly losing the preferences of the investors, because of the emergence of more lucrative investment avenues.

Author :
Reported On :
Sector :
Shoulder :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com